##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 UNITED COMMUNITY FINANCIAL CORP.
  OHIO
    
    0-024399
    
    34-1856319(State or other jurisdiction of incorporation)
    
    (Commission File No.)
    
    (IRS Employer I.D. No.)
 275 West Federal Street, Youngstown, Ohio 44503-1203
 (330) 742-0500
  (Former name or former address, if changed since last report)
  o þ
  o þ o
  o þ




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TABLE OF CONTENTS
 PAGEPart I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Financial Condition as of September 30, 2007 (Unaudited)
and December 31, 2006
    
    1Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2007 and 2006 (Unaudited)
    
    2Consolidated Statement of Shareholders Equity for the Nine Months ended September 30,
2007 (Unaudited)
    
    3Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2007 and 2006 (Unaudited)
    
    4Notes to Consolidated Financial Statements
    
    5-14Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    15-26Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    27Item 4. Controls and Procedures
    
    28Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    29Item 1A. Risk Factors
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    29Item 3. Defaults Upon Senior Securities (None)Item 4. Submission of Matters to a Vote of Security Holders (None)Item 5. Other Information
    
    30Item 6. Exhibits
    
    30Signatures
    
    31Exhibits
    
    32-35EX-31.1EX-31.2EX-32




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Assets:Cash and deposits with banks
    
    $
    31,570
    
    
    $
    34,129Federal funds sold and other
    
    
    4,254
    
    
    
    1,508Total cash and cash equivalents
    
    
    35,824
    
    
    
    35,637Securities:Trading, at fair value
    
    
    4,964
    
    
    
    10,786Available for sale, at fair value
    
    
    242,271
    
    
    
    237,531Loans, net of allowance for loan losses of $23,807 and $16,955, respectively
    
    
    2,292,565
    
    
    
    2,253,559Loans held for sale
    
    
    14,966
    
    
    
    26,960Federal Home Loan Bank stock, at cost
    
    
    25,432
    
    
    
    25,432Premises and equipment, net
    
    
    26,246
    
    
    
    25,192Accrued interest receivable
    
    
    13,442
    
    
    
    13,703Real estate owned and other repossessed assets
    
    
    11,671
    
    
    
    3,242Goodwill
    
    
    33,593
    
    
    
    33,593Core deposit intangible
    
    
    1,253
    
    
    
    1,534Cash surrender value of life insurance
    
    
    23,819
    
    
    
    23,137Other assets
    
    
    15,798
    
    
    
    13,239Total assets
    
    $
    2,741,844
    
    
    $
    2,703,545Liabilities and Shareholders EquityLiabilities:Deposits:Interest bearing
    
    $
    1,680,320
    
    
    $
    1,720,426Non-interest bearing
    
    
    102,894
    
    
    
    102,509Total deposits
    
    
    1,783,214
    
    
    
    1,822,935Federal Home Loan Bank advances
    
    
    505,542
    
    
    
    465,253Repurchase agreements and other borrowings
    
    
    147,615
    
    
    
    98,511Advance payments by borrowers for taxes and insurance
    
    
    11,593
    
    
    
    17,471Accrued interest payable
    
    
    5,353
    
    
    
    2,842Accrued expenses and other liabilities
    
    
    11,690
    
    
    
    15,200Total liabilities
    
    
    2,465,007
    
    
    
    2,422,212Shareholders EquityPreferred stock-no par value; 1,000,000 shares authorized and unissued
    
    
    
    
    
    
    Common stock-no par value; 499,000,000 shares authorized; 37,804,457
shares issued
    
    
    146,672
    
    
    
    145,834Retained earnings
    
    
    223,458
    
    
    
    220,527Accumulated other comprehensive loss
    
    
    (1,481
    )
    
    
    (1,296
    )Unearned employee stock ownership plan shares
    
    
    (9,920
    )
    
    
    (11,287
    )Treasury stock, at cost, 7,752,684 and 6,827,143 shares, respectively
    
    
    (81,892
    )
    
    
    (72,445
    )Total shareholders equity
    
    
    276,837
    
    
    
    281,333Total liabilities and shareholders equity
    
    $
    2,741,844
    
    
    $
    2,703,545
 See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands, except per share data)Interest incomeLoans
    
    $
    38,463
    
    
    $
    38,763
    
    
    $
    115,381
    
    
    $
    111,834Loans held for sale
    
    
    223
    
    
    
    550
    
    
    
    768
    
    
    
    1,538Securities:Trading
    
    
    54
    
    
    
    58
    
    
    
    179
    
    
    
    220Available for sale
    
    
    3,029
    
    
    
    2,335
    
    
    
    9,062
    
    
    
    6,915Margin accounts
    
    
    
    
    
    
    362
    
    
    
    
    
    
    
    1,069Federal Home Loan Bank dividends
    
    
    417
    
    
    
    357
    
    
    
    1,229
    
    
    
    1,047Other interest earning assets
    
    
    204
    
    
    
    39
    
    
    
    600
    
    
    
    114Total interest income
    
    
    42,390
    
    
    
    42,464
    
    
    
    127,219
    
    
    
    122,737Interest expenseDeposits
    
    
    16,886
    
    
    
    15,602
    
    
    
    50,436
    
    
    
    42,175Federal Home Loan Bank advances
    
    
    5,757
    
    
    
    5,636
    
    
    
    16,384
    
    
    
    15,517Repurchase agreements and other
    
    
    1,869
    
    
    
    1,254
    
    
    
    4,968
    
    
    
    3,347Total interest expense
    
    
    24,512
    
    
    
    22,492
    
    
    
    71,788
    
    
    
    61,039Net interest income
    
    
    17,878
    
    
    
    19,972
    
    
    
    55,431
    
    
    
    61,698Provision for loan losses
    
    
    5,363
    
    
    
    1,475
    
    
    
    10,432
    
    
    
    3,026Net interest income after provision for
loan losses
    
    
    12,515
    
    
    
    18,497
    
    
    
    44,999
    
    
    
    58,672Non-interest incomeBrokerage commissions
    
    
    6,475
    
    
    
    4,875
    
    
    
    19,764
    
    
    
    14,688Service fees and other charges
    
    
    3,705
    
    
    
    3,161
    
    
    
    11,048
    
    
    
    9,568Underwriting and investment banking
    
    
    113
    
    
    
    194
    
    
    
    358
    
    
    
    220Net gains (losses):Trading securities
    
    
    3
    
    
    
    38
    
    
    
    51
    
    
    
    70Loans sold
    
    
    892
    
    
    
    870
    
    
    
    2,079
    
    
    
    1,899Other
    
    
    (143
    )
    
    
    10
    
    
    
    (546
    )
    
    
    (17
    )Other income
    
    
    1,064
    
    
    
    1,051
    
    
    
    2,989
    
    
    
    3,115Total non-interest income
    
    
    12,109
    
    
    
    10,199
    
    
    
    35,743
    
    
    
    29,543Non-interest expenseSalaries and employee benefits
    
    
    13,733
    
    
    
    12,603
    
    
    
    42,374
    
    
    
    39,132Occupancy
    
    
    1,232
    
    
    
    1,116
    
    
    
    3,588
    
    
    
    3,330Equipment and data processing
    
    
    2,156
    
    
    
    2,055
    
    
    
    6,777
    
    
    
    6,700Franchise tax
    
    
    543
    
    
    
    525
    
    
    
    1,657
    
    
    
    1,596Advertising
    
    
    325
    
    
    
    318
    
    
    
    1,032
    
    
    
    1,109Amortization of core deposit intangible
    
    
    88
    
    
    
    119
    
    
    
    281
    
    
    
    379Other expenses
    
    
    2,655
    
    
    
    2,629
    
    
    
    7,765
    
    
    
    7,602Total non-interest expenses
    
    
    20,732
    
    
    
    19,365
    
    
    
    63,474
    
    
    
    59,848Income before income taxes
    
    
    3,892
    
    
    
    9,331
    
    
    
    17,268
    
    
    
    28,367Income taxes
    
    
    1,309
    
    
    
    3,272
    
    
    
    6,085
    
    
    
    9,926Net income
    
    $
    2,583
    
    
    $
    6,059
    
    
    $
    11,183
    
    
    $
    18,441Comprehensive income
    
    $
    4,771
    
    
    $
    8,335
    
    
    $
    10,998
    
    
    $
    18,674Earnings per shareBasic
    
    $
    0.09
    
    
    $
    0.21
    
    
    $
    0.39
    
    
    $
    0.64Diluted
    
    $
    0.09
    
    
    $
    0.21
    
    
    $
    0.38
    
    
    $
    0.63
 See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
 UnearnedAccumulated
    
    
    EmployeeOther
    
    
    StockShares
    
    
    Common
    
    
    Retained
    
    
    Comprehensive
    
    
    Ownership
    
    
    TreasuryOutstanding
    
    
    Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Plan Shares
    
    
    Stock
    
    
    Total(Dollars in thousands, except share data)Balance December 31, 2006
    
    
    30,977
    
    
    $
    145,834
    
    
    $
    220,527
    
    
    $
    (1,296
    )
    
    $
    (11,287
    )
    
    $
    (72,445
    )
    
    $
    281,333Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    11,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,183Change in net unrealized gain/(loss)
on securities, net of taxes of $100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (185
    )
    
    
    
    
    
    
    
    
    
    
    (185
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    11,183
    
    
    
    (185
    )
    
    
    
    
    
    
    
    
    
    
    10,998Shares allocated to ESOP participants
    
    
    
    
    
    
    838
    
    
    
    
    
    
    
    
    
    
    
    1,367
    
    
    
    
    
    
    
    2,205Purchase of treasury stock
    
    
    (950
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,709
    )
    
    
    (9,709
    )Exercise of stock options
    
    
    25
    
    
    
    
    
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    262
    
    
    
    176Dividends paid, $0.285 per share
    
    
    
    
    
    
    
    
    
    
    (8,166
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,166
    )Balance September 30, 2007
    
    
    30,052
    
    
    $
    146,672
    
    
    $
    223,458
    
    
    $
    (1,481
    )
    
    $
    (9,920
    )
    
    $
    (81,892
    )
    
    $
    276,837
 See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months Ended September 30,2007
    
    
    2006(Dollars in thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    11,183
    
    
    $
    18,441Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    10,432
    
    
    
    3,026Net gains
    
    
    (1,584
    )
    
    
    (1,889
    )Amortization of premiums and accretion of discounts
    
    
    1,803
    
    
    
    2,283Depreciation and amortization
    
    
    2,327
    
    
    
    2,057ESOP compensation
    
    
    2,205
    
    
    
    2,685FHLB stock dividends
    
    
    
    
    
    
    (1,047
    )Decrease in trading securities
    
    
    5,873
    
    
    
    6,298Decrease in margin accounts
    
    
    
    
    
    
    15,609Decrease (increase) in interest receivable
    
    
    261
    
    
    
    (1,584
    )Increase in prepaid and other assets
    
    
    (4,126
    )
    
    
    (7,505
    )Increase in interest payable
    
    
    2,511
    
    
    
    208Net principal disbursed on loans held for sale
    
    
    (161,119
    )
    
    
    (161,206
    )Proceeds from sale of loans held for sale
    
    
    175,084
    
    
    
    166,613Decrease in other liabilities
    
    
    (3,410
    )
    
    
    (1,242
    )Net cash from operating activities
    
    
    41,440
    
    
    
    42,747Cash Flows from Investing ActivitiesProceeds from principal repayments and maturities of:Available for sale securities
    
    
    40,736
    
    
    
    22,835Proceeds from sale of:Real estate owned and other repossessed assets
    
    
    2,753
    
    
    
    2,283Nonperforming loans
    
    
    
    
    
    
    210Premises and equipment
    
    
    
    
    
    
    532Purchases of securities available for sale
    
    
    (45,717
    )
    
    
    (30,470
    )Net principal repaid (disbursed) on loans
    
    
    78,666
    
    
    
    (1,615
    )Loans purchased
    
    
    (140,425
    )
    
    
    (157,528
    )Purchases of premises and equipment
    
    
    (3,364
    )
    
    
    (3,105
    )Net cash from investing activities
    
    
    (67,351
    )
    
    
    (166,858
    )Cash Flows from Financing ActivitiesNet increase in NOW, savings and money market accounts
    
    
    14,358
    
    
    
    40,655Net (decrease) increase in certificates of deposit
    
    
    (54,076
    )
    
    
    67,417Net decrease in advance payments by borrowers
for taxes and insurance
    
    
    (5,878
    )
    
    
    (3,994
    )Proceeds from FHLB advances
    
    
    581,353
    
    
    
    496,526Repayment of FHLB advances
    
    
    (541,064
    )
    
    
    (494,860
    )Net change in other borrowed funds
    
    
    49,104
    
    
    
    25,087Dividends paid
    
    
    (8,166
    )
    
    
    (7,804
    )Proceeds from the exercise of stock options
    
    
    176
    
    
    
    726Purchase of treasury stock
    
    
    (9,709
    )
    
    
    (2,298
    )Net cash from financing activities
    
    
    26,098
    
    
    
    121,455Decrease in cash and cash equivalents
    
    
    187
    
    
    
    (2,656
    )Cash and cash equivalents, beginning of period
    
    
    35,637
    
    
    
    37,545Cash and cash equivalents, end of period
    
    $
    35,824
    
    
    $
    34,889
 See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. BASIS OF PRESENTATION
     2. RECENT ACCOUNTING DEVELOPMENTS
 Accounting for Uncertainty in Income Taxes
   Accounting for Deferred Compensation and Postretirement Benefits Aspects of Endorsement
Split-Dollar Life Insurance Arrangement
 Accounting for
Purchases of Life Insurance  Determining the Amount That Could Be Realized in Accordance with FASB
Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance).
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The Fair Value Option for Financial Assets and
Financial Liabilities
 3. STOCK COMPENSATION
   For the nine months ended September 30,2007Weighted
    
    Aggregateaverage
    
    intrinsic valueShares
    
    exercise price
    
    (in thousands)Outstanding at beginning of year
    
    
    2,068,558
    
    
    $
    9.63Granted
    
    
    
    
    
    
    Exercised
    
    
    (24,702
    )
    
    
    7.12Forfeited
    
    
    
    
    
    
    Outstanding at end of period
    
    
    2,043,856
    
    
    $
    9.66
    
    
    $
    104Options exercisable at end of period
    
    
    2,043,856
    
    
    $
    9.66
    
    
    $
    104
  September 30,2007Intrinsic value of options exercised
    
    $
    77Cash received from option exercises
    
    
    176Tax benefit realized from option exercises
    
    
    Weighted average fair value of options granted
    
    
    
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4. SECURITIES
  September 30, 2007
    
    
    December 31, 2006(Dollars in thousands)Gross
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Gains
    
    
    LossesU.S.
Treasury and agency securities
    
    $
    91,576
    
    
    $
    113
    
    
    $
    (385
    )
    
    $
    96,847
    
    
    $
    63
    
    
    $
    (722
    )Equity securities
    
    
    7,593
    
    
    
    433
    
    
    
    (177
    )
    
    
    7,866
    
    
    
    641
    
    
    
    (112
    )Mortgage-related securities
    
    
    143,102
    
    
    
    29
    
    
    
    (2,168
    )
    
    
    132,818
    
    
    
    131
    
    
    
    (1,870
    )Total
    
    $
    242,271
    
    
    $
    575
    
    
    $
    (2,730
    )
    
    $
    237,531
    
    
    $
    835
    
    
    $
    (2,704
    )
  September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Obligations of U.S. Government
    
    $
    1,002
    
    
    $
    1,296State and municipal obligations
    
    
    3,636
    
    
    
    8,606Corporate bonds, debentures and notes
    
    
    
    
    
    
    258Mutual funds, stocks and warrants
    
    
    326
    
    
    
    626Total trading securities
    
    $
    4,964
    
    
    $
    10,786
 5. LOANS
  September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Real Estate:One- to four-family residential
    
    $
    923,288
    
    
    $
    854,829Multifamily residential
    
    
    176,203
    
    
    
    163,541Nonresidential
    
    
    346,022
    
    
    
    348,528Land
    
    
    24,551
    
    
    
    26,684Construction:One- to four-family residential
    
    
    375,673
    
    
    
    388,926Multifamily and non-residential
    
    
    20,423
    
    
    
    25,215Total real estate
    
    
    1,866,160
    
    
    
    1,807,723Consumer
    
    
    352,506
    
    
    
    345,607Commercial
    
    
    96,604
    
    
    
    116,952Total loans
    
    
    2,315,270
    
    
    
    2,270,282Less:Allowance for loan losses
    
    
    23,807
    
    
    
    16,955Deferred loan fees, net
    
    
    (1,102
    )
    
    
    (232
    )Total
    
    
    22,705
    
    
    
    16,723Loans, net
    
    $
    2,292,565
    
    
    $
    2,253,559
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As of or For theNine Months
    
    
    As of or For theEnded
    
    
    Year EndedSeptember 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Balance, beginning of year
    
    $
    16,955
    
    
    $
    15,723Provision for loan losses
    
    
    10,432
    
    
    
    4,347Amounts charged off
    
    
    (3,977
    )
    
    
    (3,438
    )Recoveries
    
    
    397
    
    
    
    323Balance, end of period
    
    $
    23,807
    
    
    $
    16,955
   As of or For
    
    As of or Forthe Nine
    
    the YearMonths Ended
    
    EndedSeptember 30,
    
    December 31,2007
    
    2006(Dollars in thousands)Impaired loans on which no specific valuation allowance was provided
    
    $
    57,741
    
    $
    28,329Impaired loans on which a specific valuation allowance was provided
    
    
    26,136
    
    
    14,217Total impaired loans at period-end
    
    $
    83,877
    
    $
    42,546Specific valuation allowances on impaired loans at period-end
    
    $
    8,892
    
    $
    2,841Average impaired loans during the period
    
    
    58,240
    
    
    23,617Interest income recognized during impairment
    
    
    305
    
    
    372Cash basis interest recognized
    
    
    305
    
    
    373
 8




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##### Table of Contents



6. MORTGAGE BANKING ACTIVITIES
 Mortgage loans serviced for others, which are not reported in United Communitys assets, totaled
$875.0 million at September 30, 2007 and $861.5 million at December 31, 2006.Activity for capitalized mortgage servicing rights, included in other assets, was as follows:
 As of or for theNine Months
    
    
    As of or for theEnded
    
    
    Year EndedSeptember 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Balance, beginning of year
    
    $
    6,820
    
    
    $
    6,923Originations
    
    
    875
    
    
    
    1,917Sale of servicing
    
    
    
    
    
    
    (323
    )Amortized to expense
    
    
    (1,320
    )
    
    
    (1,697
    )Balance, end of period
    
    $
    6,375
    
    
    $
    6,820
  September 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Balance, beginning of year
    
    $
    (435
    )
    
    $
    Impairment charges
    
    
    
    
    
    
    (435
    )Recoveries
    
    
    435
    
    
    
    Balance, end of period
    
    $
    
    
    
    $
    (435
    )
   September 30,
    
    December 31,2007
    
    2006Weighted average prepayment rate
    
    191 PSA
    
    261 PSAWeighted average life (in years)
    
    4.04
    
    4.50Weighted average discount rate
    
    8%
    
    8%
 9




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##### Table of Contents



7. OTHER POSTRETIREMENT BENEFIT PLANS
   Three Months Ended September 30,2007
    
    
    2006(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    56
    
    
    
    56Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    (1
    )
    
    
    (1
    )Recognized net actuarial gain
    
    
    
    
    
    
    Net periodic benefit cost/(gain)
    
    $
    55
    
    
    $
    55Assumptions
used in the valuations were as follows:Weighted average discount rate
    
    
    5.50
    %
    
    
    5.50
    %
 Nine Months Ended September 30,2007
    
    
    2006(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    167
    
    
    
    167Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    (1
    )
    
    
    (1
    )Recognized net actuarial gain
    
    
    
    
    
    
    Net periodic benefit cost/(gain)
    
    $
    166
    
    
    $
    166Assumptions used in the
valuations were as follows:Weighted average discount rate
    
    
    5.50
    %
    
    
    5.50
    %
 10




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8. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
  September 30, 2007
    
    September 30, 2006(Dollars in thousands)Supplemental disclosures of cash flow informationCash paid during the period for:Interest on deposits and borrowings, net of amounts capitalized
    
    $
    69,277
    
    
    $
    60,831Interest capitalized on borrowings
    
    
    17
    
    
    
    16Income taxes
    
    
    9,434
    
    
    
    9,950Supplemental schedule of noncash activities:Transfers from loans to real estate owned and other repossessed assets
    
    
    11,720
    
    
    
    3,485
 9. SEGMENT INFORMATION
  For the Three Months Ended September 30, 2007Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    42,105
    
    
    $
    285
    
    
    $
    42,390Interest expense
    
    
    24,433
    
    
    
    79
    
    
    
    24,512Provision for loan loss
    
    
    5,363
    
    
    
    
    
    
    
    5,363Net interest income after
provision for loan loss
    
    
    12,309
    
    
    
    206
    
    
    
    12,515Non-interest income
    
    
    4,121
    
    
    
    7,988
    
    
    
    12,109Non-interest expense
    
    
    13,462
    
    
    
    7,270
    
    
    
    20,732Income before tax
    
    
    2,968
    
    
    
    924
    
    
    
    3,892Income tax expense
    
    
    983
    
    
    
    326
    
    
    
    1,309Net income
    
    $
    1,985
    
    
    $
    598
    
    
    $
    2,583
 For the Three Months Ended September 30, 2006Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    41,995
    
    
    $
    469
    
    
    $
    42,464Interest expense
    
    
    22,391
    
    
    
    101
    
    
    
    22,492Provision for loan loss
    
    
    1,475
    
    
    
    
    
    
    
    1,475Net interest income after
provision for loan loss
    
    
    18,129
    
    
    
    368
    
    
    
    18,497Non-interest income
    
    
    3,793
    
    
    
    6,406
    
    
    
    10,199Non-interest expense
    
    
    13,015
    
    
    
    6,350
    
    
    
    19,365Income before tax
    
    
    8,907
    
    
    
    424
    
    
    
    9,331Income tax expense
    
    
    3,121
    
    
    
    151
    
    
    
    3,272Net income
    
    $
    5,786
    
    
    $
    273
    
    
    $
    6,059
 11




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##### Table of Contents



For the Nine Months Ended September 30, 2007Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    126,370
    
    
    $
    849
    
    
    $
    127,219Interest expense
    
    
    71,525
    
    
    
    263
    
    
    
    71,788Provision for loan loss
    
    
    10,432
    
    
    
    
    
    
    
    10,432Net interest income after
provision for loan loss
    
    
    44,413
    
    
    
    586
    
    
    
    44,999Non-interest income
    
    
    11,436
    
    
    
    24,307
    
    
    
    35,743Non-interest expense
    
    
    41,310
    
    
    
    22,164
    
    
    
    63,474Income before tax
    
    
    14,539
    
    
    
    2,729
    
    
    
    17,268Income tax expense
    
    
    5,145
    
    
    
    940
    
    
    
    6,085Net income
    
    $
    9,394
    
    
    $
    1,789
    
    
    $
    11,183
 For the Nine Months Ended September 30, 2006Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    121,324
    
    
    $
    1,413
    
    
    $
    122,737Interest expense
    
    
    60,673
    
    
    
    366
    
    
    
    61,039Provision for loan loss
    
    
    3,026
    
    
    
    
    
    
    
    3,026Net interest income after
provision for loan loss
    
    
    57,625
    
    
    
    1,047
    
    
    
    58,672Non-interest income
    
    
    9,752
    
    
    
    19,791
    
    
    
    29,543Non-interest expense
    
    
    40,262
    
    
    
    19,586
    
    
    
    59,848Income before tax
    
    
    27,115
    
    
    
    1,252
    
    
    
    28,367Income tax expense
    
    
    9,485
    
    
    
    441
    
    
    
    9,926Net income
    
    $
    17,630
    
    
    $
    811
    
    
    $
    18,441
 12




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##### Table of Contents



10. EARNINGS PER SHARE
  For the Three MonthsEnded September 30,2007
    
    
    2006(Dollars in thousands,except per share data)Net income applicable to common stock
    
    $
    2,583
    
    
    $
    6,059Weighted average common shares outstanding
    
    
    28,489
    
    
    
    28,999Dilutive effect of stock options
    
    
    43
    
    
    
    382Weighted average common shares outstanding
for dilutive computation
    
    
    28,532
    
    
    
    29,381Basic earnings per share as reported
    
    $
    0.09
    
    
    $
    0.21Diluted earnings per share as reported
    
    $
    0.09
    
    
    $
    0.21
 For the Nine MonthsEnded September 30,2007
    
    
    2006(Dollars in thousands,except per share data)Net income applicable to common stock
    
    $
    11,183
    
    
    $
    18,441Weighted average common shares outstanding
    
    
    28,792
    
    
    
    29,006Dilutive effect of stock options
    
    
    205
    
    
    
    370Weighted average common shares outstanding
for dilutive computation
    
    
    28,997
    
    
    
    29,376Basic earnings per share as reported
    
    $
    0.39
    
    
    $
    0.64Diluted earnings per share as reported
    
    $
    0.38
    
    
    $
    0.63
 11. BUSINESS COMBINATION
  13




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12. OTHER BORROWINGS
    14




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
 Selected financial ratios and other data: (1)
 At or For the Three
    
    At or For the NineMonths Ended
    
    Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Performance ratios:Return on average assets (2)
    
    
    0.38
    %
    
    
    0.91
    %
    
    
    0.55
    %
    
    
    0.94
    %Return on average equity (3)
    
    
    3.63
    %
    
    
    8.74
    %
    
    
    5.21
    %
    
    
    8.97
    %Interest rate spread (4)
    
    
    2.33
    %
    
    
    2.75
    %
    
    
    2.42
    %
    
    
    2.92
    %Net interest margin (5)
    
    
    2.78
    %
    
    
    3.18
    %
    
    
    2.88
    %
    
    
    3.33
    %Non-interest expense to average assets
    
    
    3.05
    %
    
    
    2.92
    %
    
    
    3.12
    %
    
    
    3.06
    %Efficiency ratio (6)
    
    
    68.52
    %
    
    
    63.89
    %
    
    
    68.94
    %
    
    
    65.22
    %Average interest-earning assets to average interest-bearing liabilities
    
    
    111.86
    %
    
    
    112.08
    %
    
    
    112.35
    %
    
    
    112.45
    %Capital ratios:Average equity to average assets
    
    
    10.47
    %
    
    
    10.46
    %
    
    
    10.56
    %
    
    
    10.51
    %Equity to assets, end of period
    
    
    10.10
    %
    
    
    10.36
    %
    
    
    10.10
    %
    
    
    10.36
    %Tier 1 leverage ratio
    
    
    8.03
    %
    
    
    8.67
    %
    
    
    8.03
    %
    
    
    8.67
    %Tier 1 risk-based capital ratio
    
    
    9.94
    %
    
    
    10.64
    %
    
    
    9.94
    %
    
    
    10.64
    %Total risk-based capital ratio
    
    
    12.44
    %
    
    
    11.43
    %
    
    
    12.44
    %
    
    
    11.43
    %Asset quality ratios:Nonperforming loans to net loans at end of period (7)
    
    
    4.40
    %
    
    
    1.68
    %
    
    
    4.40
    %
    
    
    1.68
    %Nonperforming assets to average assets (8)
    
    
    4.14
    %
    
    
    1.57
    %
    
    
    4.15
    %
    
    
    1.59
    %Nonperforming assets to total assets at end of period
    
    
    4.10
    %
    
    
    1.56
    %
    
    
    4.10
    %
    
    
    1.56
    %Allowance for loan losses as a percent of loans
    
    
    1.03
    %
    
    
    0.73
    %
    
    
    1.03
    %
    
    
    0.73
    %Allowance for loan losses as a percent of non-performing loans (7)
    
    
    23.61
    %
    
    
    43.78
    %
    
    
    23.61
    %
    
    
    43.78
    %Office data:Number of full service banking offices
    
    
    38
    
    
    
    37
    
    
    
    38
    
    
    
    37Number of loan production offices
    
    
    5
    
    
    
    6
    
    
    
    5
    
    
    
    6Number of brokerage offices
    
    
    21
    
    
    
    20
    
    
    
    21
    
    
    
    20Number of trust offices
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Per share data:Basic earnings per share (9)
    
    $
    0.09
    
    
    $
    0.21
    
    
    $
    0.39
    
    
    $
    0.64Diluted earnings per share (9)
    
    $
    0.09
    
    
    $
    0.21
    
    
    $
    0.38
    
    
    $
    0.63Book value (10)
    
    $
    9.21
    
    
    $
    8.94
    
    
    $
    9.21
    
    
    $
    8.94Tangible book value (11)
    
    $
    8.05
    
    
    $
    7.80
    
    
    $
    8.05
    
    
    $
    7.80Market value as a percent of book value (12)
    
    
    78
    %
    
    
    142
    %
    
    
    78
    %
    
    
    142
    %
 
 (1)
    
    Ratios for the three and nine month periods are annualized where appropriate.(2)
    
    Net income divided by average total assets.(3)
    
    Net income divided by average total equity.(4)
    
    Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities.(5)
    
    Net interest income as a percentage of average interest-earning assets.(6)
    
    Noninterest expense, excluding the amortization of core deposit intangible, divided by the sum of net interest income and noninterest income, excluding gains and losses on securities and other.(7)
    
    Nonperforming loans consist of loans ninety days past due, loans less than ninety days past due and not accruing interest and restructured loans.(8)
    
    Nonperforming assets consist of nonperforming loans and real estate owned and other repossessed assets.(9)
    
    Earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share are computed using the weighted average number ofcommon shares determined for the basic computation plus the dilutive effect of potential common shares that could be issued under outstanding stock options.(10)
    
    Equity divided by number of shares outstanding.(11)
    
    Equity minus goodwill and core deposit intangible divided by number of shares outstanding.(12)
    
    Closing price of UCFC shares on September 30, 2007, divided by book value. 15




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Forward Looking Statements
  Comparison of Financial Condition at September 30, 2007 and December 31, 2006
       16




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Allowance For Loan LossesDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 30,2006
    
    
    Provision
    
    
    Recovery
    
    
    Chargeoff
    
    
    2007Real Estate LoansPermanentOne-to four-family
    
    $
    2,234
    
    
    $
    1,120
    
    
    $
    7
    
    
    $
    (568
    )
    
    $
    2,793Multifamily residential
    
    
    818
    
    
    
    603
    
    
    
    
    
    
    
    (21
    )
    
    
    1,400Nonresidential
    
    
    2,256
    
    
    
    (931
    )
    
    
    
    
    
    
    (28
    )
    
    
    1,297Land
    
    
    151
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    157Total
    
    
    5,459
    
    
    
    798
    
    
    
    7
    
    
    
    (617
    )
    
    
    5,647Construction LoansOne-to four-family residential
    
    
    3,092
    
    
    
    5,279
    
    
    
    
    
    
    
    (307
    )
    
    
    8,064Multifamily and nonresidential
    
    
    229
    
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    194Total
    
    
    3,321
    
    
    
    5,244
    
    
    
    
    
    
    
    (307
    )
    
    
    8,258Consumer LoansHome Equity
    
    
    1,046
    
    
    
    273
    
    
    
    1
    
    
    
    (155
    )
    
    
    1,165Auto
    
    
    510
    
    
    
    39
    
    
    
    18
    
    
    
    (92
    )
    
    
    475Marine
    
    
    991
    
    
    
    1,518
    
    
    
    54
    
    
    
    (618
    )
    
    
    1,945Recreational vehicle
    
    
    1,888
    
    
    
    862
    
    
    
    2
    
    
    
    (562
    )
    
    
    2,190Other
    
    
    712
    
    
    
    (270
    )
    
    
    313
    
    
    
    (385
    )
    
    
    370Total
    
    
    5,147
    
    
    
    2,422
    
    
    
    388
    
    
    
    (1,812
    )
    
    
    6,145Commercial LoansSecured
    
    
    1,936
    
    
    
    1,750
    
    
    
    
    
    
    
    (1,241
    )
    
    
    2,445Unsecured
    
    
    1,092
    
    
    
    218
    
    
    
    2
    
    
    
    
    
    
    
    1,312Total
    
    
    3,028
    
    
    
    1,968
    
    
    
    2
    
    
    
    (1,241
    )
    
    
    3,757Total Allowance
    
    $
    16,955
    
    
    $
    10,432
    
    
    $
    397
    
    
    $
    (3,977
    )
    
    $
    23,807
  17




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##### Table of Contents



Nonperforming LoansSeptember 30,
    
    
    December 31,
    
    
    
    
    
    
    2007 Interest2007
    
    
    2006
    
    
    Change
    
    
    ForegoneReal Estate LoansPermanentOne-to four-family
    
    $
    12,100
    
    
    $
    8,976
    
    
    $
    3,124
    
    
    $
    219Multifamily residential
    
    
    8,970
    
    
    
    2,642
    
    
    
    6,328
    
    
    
    309Nonresidential
    
    
    14,307
    
    
    
    13,941
    
    
    
    366
    
    
    
    863Land
    
    
    3,700
    
    
    
    6,699
    
    
    
    (2,999
    )
    
    
    399Total
    
    
    39,077
    
    
    
    32,258
    
    
    
    6,819
    
    
    
    1,790Construction LoansOne-to four-family residential
    
    
    46,307
    
    
    
    11,853
    
    
    
    34,454
    
    
    
    2,237Multifamily and nonresidential
    
    
    825
    
    
    
    2,533
    
    
    
    (1,708
    )
    
    
    (69
    )Total
    
    
    47,132
    
    
    
    14,386
    
    
    
    32,746
    
    
    
    2,168Consumer LoansHome Equity
    
    
    2,226
    
    
    
    1,374
    
    
    
    852
    
    
    
    44Auto
    
    
    225
    
    
    
    252
    
    
    
    (27
    )
    
    
    1Marine
    
    
    1,808
    
    
    
    1,383
    
    
    
    425
    
    
    
    32Recreational vehicle
    
    
    567
    
    
    
    540
    
    
    
    27
    
    
    
    4Other
    
    
    324
    
    
    
    252
    
    
    
    72
    
    
    
    30Total
    
    
    5,150
    
    
    
    3,801
    
    
    
    1,349
    
    
    
    111Commercial LoansSecured
    
    
    6,045
    
    
    
    2,380
    
    
    
    3,665
    
    
    
    249Unsecured
    
    
    1,284
    
    
    
    617
    
    
    
    667
    
    
    
    54Total
    
    
    7,329
    
    
    
    2,997
    
    
    
    4,332
    
    
    
    303Restructured Loans
    
    
    2,132
    
    
    
    1,385
    
    
    
    747
    
    
    
    Total Nonperforming Loans
    
    $
    100,820
    
    
    $
    54,827
    
    
    $
    45,993
    
    
    $
    4,372
   
    
    A $10.0 million relationship consists of numerous loans to a developer to acquire and
develop a 30 acre tract in the Columbus, Ohio, area and to build single family homes and
condominiums. The borrowers inability to sell excess inventory has caused cash flow from
the project to diminish. The Company is pursuing judgments against the borrower and
securing the properties for potential sale through a receivership. The receiver will take
possession of the properties, unencumbered, and liquidate the properties.
    
    A second project totaling $9.8 million is located in the Pittsburgh area. The two loans
comprising the project were solely for the purpose of acquisition and development of a 169
acre tract. The borrower claims to be insolvent at this time. Currently the Company is
working to secure a deed in lieu of foreclosure. In addition, the Company is working with
an engineering company to determine the feasibility of development, cost to develop, and
the cost/benefit of mining certain natural resources that are present on the property.
    
    A third project is located in the Springboro, Ohio area. This relationship, which
totals $8.3 million, was also for the acquisition and development of 195 acres of property
and the construction of single family residences and condominiums. The borrower claims to
be insolvent. The Company has obtained a judgment against the borrower and secured
judgment liens against the Companys collateral and all other assets of the borrower and
related entities.
 18




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##### Table of Contents



Impaired LoansSeptember 30,
    
    
    December 31,2007
    
    
    2006
    
    
    ChangeReal Estate LoansPermanentOne-to four-family
    
    $
    1,786
    
    
    $
    794
    
    
    $
    992Multifamily residential
    
    
    8,970
    
    
    
    2,642
    
    
    
    6,328Nonresidential
    
    
    14,307
    
    
    
    13,927
    
    
    
    380Land
    
    
    3,700
    
    
    
    6,699
    
    
    
    (2,999
    )Total
    
    
    28,763
    
    
    
    24,062
    
    
    
    4,701Construction LoansOne-to four-family residential
    
    
    45,152
    
    
    
    11,698
    
    
    
    33,454Multifamily and nonresidential
    
    
    825
    
    
    
    2,533
    
    
    
    (1,708
    )Total
    
    
    45,977
    
    
    
    14,231
    
    
    
    31,746Consumer LoansHome Equity
    
    
    
    
    
    
    
    
    
    
    Auto
    
    
    
    
    
    
    
    
    
    
    Boat
    
    
    1,808
    
    
    
    1,377
    
    
    
    431Recreational vehicle
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,808
    
    
    
    1,377
    
    
    
    431Commercial LoansSecured
    
    
    6,045
    
    
    
    2,282
    
    
    
    3,763Unsecured
    
    
    1,284
    
    
    
    594
    
    
    
    690Total
    
    
    7,329
    
    
    
    2,876
    
    
    
    4,453Total Impaired Loans
    
    $
    83,877
    
    
    $
    42,546
    
    
    $
    41,331
   19




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##### Table of Contents



Comparison of Operating Results for the Three Months Ended
September 30, 2007 and September 30, 2006
 Net Income.
 20




---



##### Table of Contents



Net Interest Income.
    21




---



##### Table of Contents



For the Three Months Ended September 30,2007 vs. 2006Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (1,243
    )
    
    $
    943
    
    
    $
    (300
    )Loans held for sale
    
    
    (65
    )
    
    
    (262
    )
    
    
    (327
    )Investment securities:Trading
    
    
    (293
    )
    
    
    289
    
    
    
    (4
    )Available for sale
    
    
    280
    
    
    
    414
    
    
    
    694Margin accounts
    
    
    (181
    )
    
    
    (181
    )
    
    
    (362
    )FHLB stock
    
    
    49
    
    
    
    11
    
    
    
    60Other interest-earning assets
    
    
    73
    
    
    
    92
    
    
    
    165Total interest-earning assets
    
    $
    (1,380
    )
    
    $
    1,306
    
    
    $
    (74
    )Interest-bearing liabilities:Savings accounts
    
    
    
    
    
    
    (26
    )
    
    
    (26
    )NOW and money market accounts
    
    
    203
    
    
    
    439
    
    
    
    642Certificates of deposit
    
    
    924
    
    
    
    (256
    )
    
    
    668Federal Home Loan Bank advances
    
    
    (15
    )
    
    
    136
    
    
    
    121Repurchase agreements and other
    
    
    82
    
    
    
    533
    
    
    
    615Total interest-bearing liabilities
    
    $
    1,194
    
    
    $
    826
    
    
    
    2,020Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (2,094
    )
 Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
 Comparison of Operating Results for the Nine Months Ended
September 30, 2007 and September 30, 2006
 Net Income.
 22




---



##### Table of Contents



Net Interest Income.
    For the Nine Months Ended September 30,2007 vs. 2006Increase
    
    
    Total(decrease) due to
    
    
    IncreaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (1,080
    )
    
    $
    4,627
    
    
    $
    3,547Loans held for sale
    
    
    84
    
    
    
    (854
    )
    
    
    (770
    )Investment securities:Trading
    
    
    (37
    )
    
    
    (4
    )
    
    
    (41
    )Available for sale
    
    
    844
    
    
    
    1,303
    
    
    
    2,147Margin accounts
    
    
    (534
    )
    
    
    (535
    )
    
    
    (1,069
    )FHLB stock
    
    
    134
    
    
    
    48
    
    
    
    182Other interest-earning assets
    
    
    313
    
    
    
    173
    
    
    
    486Total interest-earning assets
    
    $
    (276
    )
    
    $
    4,758
    
    
    $
    4,482Interest-bearing liabilities:Savings accounts
    
    
    2
    
    
    
    (112
    )
    
    
    (110
    )NOW and money market accounts
    
    
    1,560
    
    
    
    1,745
    
    
    
    3,305Certificates of deposit
    
    
    4,514
    
    
    
    552
    
    
    
    5,066Federal Home Loan Bank advances
    
    
    891
    
    
    
    (24
    )
    
    
    867Repurchase agreements and other
    
    
    363
    
    
    
    1,258
    
    
    
    1,621Total interest-bearing liabilities
    
    $
    7,330
    
    
    $
    3,419
    
    
    
    10,749Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (6,267
    )
 23




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##### Table of Contents



Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
 24




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
  Three Months Ended September 30,2007
    
    
    2006Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars In thousands)Interest-earning assets:Net loans (1)
    
    $
    2,263,546
    
    
    $
    38,463
    
    
    
    6.80
    %
    
    $
    2,214,216
    
    
    $
    38,763
    
    
    
    7.00
    %Net loans held for sale
    
    
    18,605
    
    
    
    223
    
    
    
    4.79
    %
    
    
    39,855
    
    
    
    550
    
    
    
    5.52
    %Investment securities:Trading
    
    
    5,701
    
    
    
    54
    
    
    
    3.79
    %
    
    
    4,546
    
    
    
    58
    
    
    
    5.10
    %Available for sale
    
    
    245,884
    
    
    
    3,029
    
    
    
    4.93
    %
    
    
    210,831
    
    
    
    2,335
    
    
    
    4.43
    %Margin accounts
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    13,766
    
    
    
    362
    
    
    
    10.52
    %FHLB stock
    
    
    25,432
    
    
    
    417
    
    
    
    6.56
    %
    
    
    24,699
    
    
    
    357
    
    
    
    5.78
    %Other interest-earning assets
    
    
    9,169
    
    
    
    204
    
    
    
    8.90
    %
    
    
    3,750
    
    
    
    39
    
    
    
    4.16
    %Total interest-earning assets
    
    
    2,568,337
    
    
    
    42,390
    
    
    
    6.60
    %
    
    
    2,511,663
    
    
    
    42,464
    
    
    
    6.76
    %Noninterest-earning assets
    
    
    151,234
    
    
    
    
    
    
    
    
    
    
    
    139,902Total assets
    
    $
    2,719,571
    
    
    
    
    
    
    
    
    
    
    $
    2,651,565Interest-bearing liabilities:NOW and money market accounts
    
    $
    401,458
    
    
    $
    3,564
    
    
    
    3.55
    %
    
    $
    351,001
    
    
    $
    2,922
    
    
    
    3.33
    %Savings accounts
    
    
    182,720
    
    
    
    191
    
    
    
    0.42
    %
    
    
    207,388
    
    
    
    217
    
    
    
    0.42
    %Certificates of deposit
    
    
    1,096,057
    
    
    
    13,131
    
    
    
    4.79
    %
    
    
    1,119,756
    
    
    
    12,463
    
    
    
    4.45
    %Federal Home Loan Bank advances
    
    
    470,031
    
    
    
    5,757
    
    
    
    4.90
    %
    
    
    458,911
    
    
    
    5,636
    
    
    
    4.91
    %Repurchase agreements and other
    
    
    145,860
    
    
    
    1,869
    
    
    
    5.12
    %
    
    
    103,938
    
    
    
    1,254
    
    
    
    4.83
    %Total interest-bearing liabilities
    
    
    2,296,126
    
    
    
    24,512
    
    
    
    4.27
    %
    
    
    2,240,994
    
    
    
    22,492
    
    
    
    4.01
    %Noninterest-bearing liabilities
    
    
    138,833
    
    
    
    
    
    
    
    
    
    
    
    133,187Total liabilities
    
    
    2,434,959
    
    
    
    
    
    
    
    
    
    
    
    2,374,181Equity
    
    
    284,612
    
    
    
    
    
    
    
    
    
    
    
    277,384Total liabilities and equity
    
    $
    2,719,571
    
    
    
    
    
    
    
    
    
    
    $
    2,651,565Net interest
income and interest rate spread
    
    
    
    
    
    $
    17,878
    
    
    
    2.33
    %
    
    
    
    
    
    $
    19,972
    
    
    
    2.75
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.78
    %
    
    
    
    
    
    
    
    
    
    
    3.18
    %Average interest-earning assets
to average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    111.86
    %
    
    
    
    
    
    
    
    
    
    
    112.08
    %
 
 (1)
    
    Nonaccrual loans are included in the average balance. 25




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
  Nine Months Ended September 30,2007
    
    
    2006Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars In thousands)Interest-earning assets:Net loans (1)
    
    $
    2,255,789
    
    
    $
    115,381
    
    
    
    6.82
    %
    
    $
    2,165,063
    
    
    $
    111,834
    
    
    
    6.89
    %Net loans held for sale
    
    
    19,633
    
    
    
    768
    
    
    
    5.22
    %
    
    
    41,353
    
    
    
    1,538
    
    
    
    4.96
    %Investment securities:Trading
    
    
    6,503
    
    
    
    179
    
    
    
    3.67
    %
    
    
    6,632
    
    
    
    220
    
    
    
    4.42
    %Available for sale
    
    
    249,681
    
    
    
    9,062
    
    
    
    4.84
    %
    
    
    212,261
    
    
    
    6,915
    
    
    
    4.34
    %Margin accounts
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    15,253
    
    
    
    1,069
    
    
    
    9.34
    %FHLB stock
    
    
    25,432
    
    
    
    1,229
    
    
    
    6.44
    %
    
    
    24,356
    
    
    
    1,046
    
    
    
    5.73
    %Other interest-earning assets
    
    
    7,844
    
    
    
    600
    
    
    
    10.20
    %
    
    
    4,032
    
    
    
    115
    
    
    
    3.80
    %Total interest-earning assets
    
    
    2,564,882
    
    
    
    127,219
    
    
    
    6.61
    %
    
    
    2,468,950
    
    
    
    122,737
    
    
    
    6.63
    %Noninterest-earning assets
    
    
    145,057
    
    
    
    
    
    
    
    
    
    
    
    137,274Total assets
    
    $
    2,709,939
    
    
    
    
    
    
    
    
    
    
    $
    2,606,224Interest-bearing liabilities:NOW and money market accounts
    
    $
    392,939
    
    
    $
    10,287
    
    
    
    3.49
    %
    
    $
    320,556
    
    
    $
    6,982
    
    
    
    2.90
    %Savings accounts
    
    
    189,422
    
    
    
    585
    
    
    
    0.41
    %
    
    
    225,562
    
    
    
    695
    
    
    
    0.41
    %Certificates of deposit
    
    
    1,119,117
    
    
    
    39,564
    
    
    
    4.71
    %
    
    
    1,101,721
    
    
    
    34,498
    
    
    
    4.18
    %Federal Home Loan Bank advances
    
    
    448,487
    
    
    
    16,384
    
    
    
    4.87
    %
    
    
    449,178
    
    
    
    15,517
    
    
    
    4.61
    %Repurchase agreements and other
    
    
    132,976
    
    
    
    4,968
    
    
    
    4.98
    %
    
    
    98,595
    
    
    
    3,347
    
    
    
    4.53
    %Total interest-bearing liabilities
    
    
    2,282,941
    
    
    
    71,788
    
    
    
    4.19
    %
    
    
    2,195,612
    
    
    
    61,039
    
    
    
    3.71
    %Noninterest-bearing liabilities
    
    
    140,731
    
    
    
    
    
    
    
    
    
    
    
    136,609Total liabilities
    
    
    2,423,672
    
    
    
    
    
    
    
    
    
    
    
    2,332,221Equity
    
    
    286,267
    
    
    
    
    
    
    
    
    
    
    
    274,003Total liabilities and equity
    
    $
    2,709,939
    
    
    
    
    
    
    
    
    
    
    $
    2,606,224Net interest income and interestrate spread
    
    
    
    
    
    $
    55,431
    
    
    
    2.42
    %
    
    
    
    
    
    $
    61,698
    
    
    
    2.92
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.88
    %
    
    
    
    
    
    
    
    
    
    
    3.33
    %Average interest-earning assets
to average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    112.35
    %
    
    
    
    
    
    
    
    
    
    
    112.45
    %
 
 (1)
    
    Nonaccrual loans are included in the average balance. 26




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 Qualitative Aspects of Market Risk.
 Quantitative Aspects of Market Risk.
   Quarter ended September 30, 2007NPV as % of portfolio value of assets
    
    Next 12 months net interest income(Dollars in thousands)Change in rates
    
    
    
    
    Internal policy
    
    
    
    
    
    
    
    Internal policy(Basis points)
    
    NPV Ratio

    limitations

    Change in %
    
    $ Change
    
    limitations
    
    % Change+300
    
    
    9.11
    %
    
    
    5.00
    %
    
    
    (1.71
    )%
    
    $
    (5,271
    )
    
    
    (15.00
    )%
    
    
    (7.09
    )%+200
    
    
    9.79
    
    
    
    6.00
    
    
    
    (1.03
    )
    
    
    (3,319
    )
    
    
    (10.00
    )
    
    
    (4.51
    )+100
    
    
    10.39
    
    
    
    6.00
    
    
    
    (0.43
    )
    
    
    (1,574
    )
    
    
    (5.00
    )
    
    
    (2.14
    )Static
    
    
    10.82
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100)
    
    
    10.66
    
    
    
    6.00
    
    
    
    (0.16
    )
    
    
    2,519
    
    
    
    (5.00
    )
    
    
    3.42(200)
    
    
    9.72
    
    
    
    6.00
    
    
    
    (1.10
    )
    
    
    1,803
    
    
    
    (15.00
    )
    
    
    2.45(300)
    
    
    8.38
    
    
    
    5.00
    
    
    
    (2.44
    )
    
    
    (397
    )
    
    
    (20.00
    )
    
    
    (0.54
    )
 27




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##### Table of Contents



Year Ended December 31, 2006NPV as % of portfolio value of assets
    
    Next 12 months net interest income(Dollars in thousands)Change in rates
    
    
    
    
    
    Internal policy
    
    
    
    
    
    
    
    
    
    Internal policy(Basis points)
    
    NPV Ratio
    
    limitations
    
    Change in %
    
    $ Change
    
    limitations
    
    % Change+300
    
    
    8.92
    %
    
    
    5.00
    %
    
    
    (2.27
    )%
    
    $
    (10,078
    )
    
    
    (15.00
    )%
    
    
    (13.95
    )%+200
    
    
    9.81
    
    
    
    6.00
    
    
    
    (1.38
    )
    
    
    (6,455
    )
    
    
    (10.00
    )
    
    
    (8.94
    )+100
    
    
    10.60
    
    
    
    6.00
    
    
    
    (0.59
    )
    
    
    (2,972
    )
    
    
    (5.00
    )
    
    
    (4.12
    )Static
    
    
    11.19
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100)
    
    
    11.19
    
    
    
    6.00
    
    
    
    
    
    
    
    2,651
    
    
    
    (5.00
    )
    
    
    3.67(200)
    
    
    10.62
    
    
    
    6.00
    
    
    
    (0.57
    )
    
    
    3,548
    
    
    
    (15.00
    )
    
    
    4.91(300)
    
    
    9.69
    
    
    
    5.00
    
    
    
    (1.50
    )
    
    
    2,254
    
    
    
    (20.00
    )
    
    
    3.12
   Potential Impact of Changes in Interest Rates.
  
 ITEM 4. Controls and Procedures
  28




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##### Table of Contents



PART II. OTHER INFORMATION
 UNITED COMMUNITY FINANCIAL CORP.
 
 ITEM 1   Legal Proceedings
  
 ITEM 1A   Risk Factors
  Increasing credit risks could continue to adversely affect our results of operations.
   
 ITEM 2  Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity SecuritiesTotal Number ofShares Purchased as
    
    
    Maximum Number ofPart of Publicly
    
    
    Shares that May Yet BeTotal Number of Shares
    
    
    Average Price
    
    
    Announced Plans or
    
    
    Purchased Under the PlansPeriod
    
    Purchased
    
    
    Paid per Share
    
    
    Programs
    
    
    or Programs7/1 to 7/31/2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,642,255
    (1)8/1 to 8/31/2007
    
    
    126,825
    
    
    
    7.23
    
    
    
    126,825
    
    
    
    1,515,4309/1 to 9/30/2007
    
    
    37,626
    
    
    
    7.28
    
    
    
    37,626
    
    
    
    1,477,804Total
    
    
    164,451
    
    
    $
    7.24
    
    
    
    164,451
    
    
    
    1,477,804
 
 (1)
    
    On April 30, 2007, United Community announced that its Board of Directors had approved
a plan to repurchase 2,000,000 shares of stock. 29




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##### Table of Contents



ITEM 5 Other Information
 Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet Arrangement
    
 ITEM 6  Exhibits
  ExhibitNumber
    
    Description3.1
    
    Articles of Incorporation3.2
    
    Amended Code of Regulations10.1
    
    Agreement and Plan of Merger31.1
    
    Section 302 Certification by Chief Executive Officer31.2
    
    Section 302 Certification by Chief Financial Officer32
    
    Certification of Statements by Chief Executive Officer and Chief Financial Officer
 30




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 SIGNATURES
   Date:
    November 9, 2007
    
    /S/ Douglas M. McKayDouglas M. McKay, Chief Executive
OfficerDate:
    November 9, 2007
    
    /S/ Patrick A. KellyPatrick A. Kelly, Chief Financial Officer
 31




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 Exhibit 3.1
  Exhibit 3.2
  Exhibit 10.1
  32